There is no doubt that you can make money by owning shares of unprofitable companies. For example, Amazon.com lost money for years after going public, but if you had bought and held the stock since 1999, you could have made a lot of money. But the harsh reality is that too many loss-making businesses run out of cash and go bankrupt.
you should cyclofarm (ASX:CYC) shareholders worried about cash burn? In this article, we define cash burn as the amount of cash a company spends each year to fund growth (also known as negative free cash flow). Define. Let's start by examining the company's cash compared to its cash burn.
Check out our latest analysis for Cyclopharm.
Does Cyclopharm have long-term financing potential?
Cash runway is defined as the time it would take for a company to run out of cash if it continued to spend at its current cash burn rate. As of December 2023, Cyclopharm had cash of AU$12 million and no debt. Importantly, its cash burn in the trailing twelve months was AU$7.7m. In other words, the company's cash runway was approximately 18 months from December 2023. But importantly, one of the analysts we cover this stock thinks Cyclopharm will reach cash flow breakeven by then. If that were to happen, the length of that financial runway would be at issue today. The image below shows how its cash balance has changed over the past few years.
How well is Cyclopharm growing?
Overall, we think it's somewhat positive to see that Cyclopharm reduced its cash burn by 6.2% over the last twelve months. Operating revenue also increased by 13%. Overall, I'd say the company is improving over time. However, it is clear that the key factor is whether the company will grow its business going forward. So it might be worth taking a peek at how much the company is expected to grow over the next few years.
How difficult will it be for Cyclopharm to raise more capital for growth?
Cyclopharm seems to be in a pretty good position in terms of cash burn, but we think it's still worth considering how easily it could raise even more capital if it wanted to. The most common ways for publicly traded companies to raise more money for their operations is by issuing new shares or taking on debt. Companies typically sell their new stock to raise cash and fuel growth. By looking at a company's cash burn compared to its market capitalization, insight into how much shareholders will be diluted if the company needs to raise enough cash to cover another year's cash burn. It can be obtained.
Cyclopharm has a market capitalization of AU$169m, which flared up to AU$7.7m last year, representing 4.5% of the company's market value. Because this is a low percentage, the company believes it can raise more cash to fund growth with some dilution or simply borrowing money.
So should we be worried about Cyclopharm's cash burn?
As you can probably tell by now, we're not too worried about Cyclopharm's cash burn. In particular, we believe that the fact that cash burn is outstanding compared to market capitalization is evidence that the company is spending adequately. The weak point is the decline in cash burn, but it still wasn't bad. It's clearly very positive that at least one analyst predicts the company will break even soon. After considering various factors in this article, we think the company is well-positioned to continue funding growth, so we're pretty relaxed about its cash burn. In the absence of traditional metrics such as earnings per share or free cash flow to value a company, many people place special emphasis on considering qualitative factors such as whether insiders are buying or selling the stock. I have a strong desire. please note: Our data shows that Cyclopharm insiders have been trading the stock. Click here to see if insiders have been buying or selling.
If you want to check out another company with better fundamentals, don't miss this free A list of interesting companies with a high return on equity, low debt, or a list of growing stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
